Ignore the effect of inflation on your savings at your peril. If you’re
earning less than it on your cash, then you’re losing money.

This has been a serious problem for savers on the UK mainland for the past year or so. With inflation as measured by the Retail Prices Index up at five per cent it’s impossible to have an onshore savings account that even maintains the value of your money.

Even if you take inflation as measured by the Consumer Prices Index (which excludes most housing costs) then at 3.2 per cent it’s still pretty hard to do better than that onshore, particularly if you’re a taxpayer. And after the abolition of National Savings & Investments index-linked certificates last month, the most reliable way for onshore savers to make sure inflation does not eat away at their money has gone.

While other countries popular with UK expatriates are not suffering from such high levels of inflation - the UK has the highest inflation rate in Western Europe - it’s still a concern for many savers who don’t want their money eroded by climbing costs.

Remember, even if your savings are in sterling accounts in offshore accounts based in the Channel Islands or Isle of Man, it’s not inflation there which matters to you.

Your concern is the inflation rate where you live, because that’s where you spend your money on day-to-day expenses. So you’ve got to create a balance between interest rates in the country or dependency where you keep your savings with the inflation rate in the place where you live.

For example, if you live in a country with an inflation rate of, say, three per cent then you need to earn at least that on your savings for them to even keep pace with the cost of living. Less than that, and even if you think you’re being prudent by stashing your money away in an account, you’re not: the spending power of your savings is being eroded.

Given the current low interest rate environment, even getting three per cent on an offshore account is pretty hard: the best paying variable rate account on offer at the moment is Alliance & Leicester’s 50-day notice account which pays exactly three per cent.

While inflation is not a problem in the USA or Canada – it is currently around one per cent in both countries - in other popular UK expatriate haunts it is more of a concern.

In South Africa, for example, it’s currently 4.2 per cent. So, if you’re an expatriate Briton living in South Africa, you need to get at least that on your hard-earned savings just to maintain the value of your savings. Unless you opt for the current top-paying fixed rate of 4.25 per cent – paid by Lloyds TSB International and Clydesdale International, both fixed for five years – then that’s impossible. And if you fix for five years, you’re taking a longer-term bet than many would be happy to do on interest rates remaining low.

In Australia, inflation is currently around 3.1 per cent, so you’d have to put your savings into fixed rates just to maintain their value. In New Zealand it’s easier, with inflation around 1.8 per cent: but there are still plenty of accounts paying less than that. In France and Spain, inflation is around 1.5 per cent, so again, you need to make sure you’re not in an account paying less than that.

Just be thankful you don’t have to cope with hyperinflation: the highest inflation rate recorded is said to be 195 per cent a day in Hungary in 1945: at that level, prices in the shops were doubling every 15 hours.